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Freddie Mac to Add, Raise Fees for Higher Risk Loans

Freddie Mac will begin charging mortgage lenders between 0.75% and 2% for loans its buys which exceed 70 percent loan-to-value, and fall below a credit score of 680.

Freddie Mac’s changes are “in response to continuing volatility and turmoil in the mortgage market, including the deteriorating performance of higher-risk mortgage products,” the Virginia-based company said in a note on its website.

The move, which will take effect March 1st, will also lower the maximum loan-to-value cap by at least five percent for mortgages that originate from depreciating housing markets.

Freddie Mac has also decided to immediately exit the “no-income, no-asset” (NINA) verification mortgage market.

Both Fannie Mae and Freddie Mac are also raising fees for loans on two-unit properties.

Washington-based Fannie Mae, the larger of the two government-sponsored entities, announced two weeks ago that it would be raising fees to mitigate risk.

Unfortunately, mortgage lenders and banks aren’t in the business of reducing their own profits, so consumer mortgage rates will likely rise as a result.

During the third quarter, conforming loans that were not insured by the Federal Housing Administration (FHA) or guaranteed by the Veterans Administration (VA) made up half of all new mortgages, the highest percentage for “conventional conforming” mortgages since 2003, according to Inside Mortgage Finance.

In related news, shares of Freddie Mac and Fannie Mae were hammered on Wall St. Friday after the two GSEs revealed markedly higher debt protection costs, raising concerns on how the two financiers handle loss accounting.

Shares of Fannie Mae, which reached their lowest point since April 1997 in early trading, were down $2.02, or 4.69%, to $41.02, while Freddie Mac was down $2.11, or 5.04%, to $39.75 in midday trading.

The news may dent their chances of seeing any near-term portfolio cap increase.

Fannie Mae and Freddie Mac own or guarantee roughly 40 percent of the $11.5 trillion U.S. residential mortgage debt.

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